Despite the calamity that the pandemic has brought on all of us, the disastrous year of 2020 hasn’t been too terrible for some sectors. Indeed, some markets have strongly outperformed, as if crises were catalysts. One conspicuous example is the housing market, which has generated multi-year records. And that has been a boon for e-commerce firm Wayfair (NYSE:W). In the year-to-date, Wayfair stock is up a blistering 231%.
Although seemingly contrary to the underlying fundamentals, the case for Wayfair stock is tied to housing. And this sector has been on a tear. According to a recent CNN report, home sales surged to a 14-year high in August. Specifically, existing home sales increased 2.4% between July and August, and was up 10.5% from the year-ago level, the highest such rate since December 2006.
Before you think this is a one-off event, consider that in June, existing home sales leaped to a 20.7% record growth. Admittedly, this comparison was generated due to the law of small numbers from pandemic-devastated lows. Nevertheless, it confirms that the bullishness that has driven Wayfair stock has been in play for months.
Still, some prospective buyers of W stock may question the sustainability of this momentum. After all, when you turn on the news, you’re seeing stories of disheartening pessimism. As well, the novel coronavirus continues to be a major concern. Using data from the Centers for Disease Control and Prevention, it appears that Covid-19 cases are rising to an uncomfortable threshold.
Further, while the low-interest rate environment is a positive for Wayfair stock, you don’t necessarily want to dive in on a single statistic. But this e-commerce story is much more involved than that.
Fundamentals Demonstrate Why You Can Trust Wayfair Stock
Look around on the internet and you’ll see multiple comparisons to the 2008 financial collapse. Around that time, the bubble in the housing market burst, devastating home values. It was a great time to buy if you had the money. But for millions of households, the crisis produced a lingering pain.
Of course, I can appreciate why people are connecting the dots today. However, the main difference is that the housing market back then was built off unsustainable speculation. Today, we incurred a shocking, once-in-a-century pandemic that caught many world governments unaware. It’s hardly the same thing. And that’s one reason why you shouldn’t ignore Wayfair stock – the comparison isn’t accurate.
Second, the shock event devastated the labor market. But it’s important to realize that millions of white-collar jobs were saved thanks to American ingenuity and resourcefulness. With so many white-collar employees working remotely, the impact to their individual wealth profile has improved.
Think about it – now people don’t have to waste hours sitting in traffic. Further, the reduced stress level should be net positive for broader health outcomes, excepting of course the acute threat of the pandemic. Also, employees don’t have to spend resources on intangible assets, such as dressing for success, or going out for lunches and happy hours. That leaves more time and more money for house-hunting.
And that’s exactly what people are doing. Demand is strong, ridiculously strong as housing sales data indicates. In many hot markets, there are crazed bidding wars. That leaves many people on the losing end of the deal.
However, that also suggests that when new inventory arrives, the volume of “losers” will then compete for those units. Combined with the low interest rates, this housing boom should stay with us.
Benefiting from Fortuitous Logistics
Naturally, the criticism to the above argument is that the high-demand, low-inventory ecosystem within housing will drive up prices. Already, lower income households were priced out. But soaring demand will make it harder for higher income households to compete, if they even want to.
Likely, many won’t. And you’ll see households from high-density urban centers move to the suburbs, rural areas or out of state. If that happens, this dynamic would be net positive for Wayfair stock.
How? As an e-commerce retailer, Wayfair can first do business anywhere in the U.S. More importantly, the company’s products don’t change just because of the location of their buyers. A particular piece of furniture sells for what it sells. Thus, whether that demand is coming from Madison, Wisconsin or Manhattan, it’s revenue in the books.
Finally, I wouldn’t stress about the labor market. Again, the demand loss was due to the pandemic. Once it fades, even the sectors that were most devastated from the coronavirus will return.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.